TMI Blog2002 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... is challenged. In Criminal Appeal No. 601 of 1992, the learned single judge of the Madras High Court (see [1992] 197 ITR 330) quashed the prosecution initiated against the respondent by holding that section 269SS is violative of article 14 of the Constitution and, therefore, the prosecution initiated against the respondent was not legal. The learned single judge granted certificate article 134A of the Constitution and the present appeal has been filed by the Department. In Civil Appeal No. 4478 of 2000, the appellant had challenged the constitutional validity of sections 269SS and 271D of the Act before the High Court. The learned single judge (see [1999] 239 ITR 694 (Kar)) dismissed the writ petition. Thereupon the appellant filed an appeal before the Division Bench. The Division Bench in Writ Appeal No. 5447 of 1999 (see [2000] 245 ITR 661) affirmed the order of the learned single judge. The judgment of the Division Bench is now challenged before us in this appeal. Section 269SS was inserted in the Income-tax Act by the Finance Act, 1984, with effect from April 1, 1984, but the same was made operative from July 1, 1984. The Income-tax Department, in the course of searches car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 (1 of 1956); (e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing, notify in this behalf in the Official Gazette: Provided further that the provisions of this section shall not apply to any loan or deposit where the person from whom the loan or deposit is taken or accepted and the person by whom the loan or deposit is taken or accepted are both having agricultural income and neither of them has any income chargeable to tax under this Act. Explanation.-- For the purposes of this section,-- (i) 'banking company' means a company to which the Banking Regulation Act, 1949 (10 of 1949) applies and includes any bank or banking institution referred to in section 51 of that Act; (ii) 'co-operative bank' shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949 (10 of 1949); (iii) 'loan or deposit' means loan or deposit of money." Section 276DD was inserted in the Act by the Finance Act, 1984, which came into effect from April 1, 1984, and which reads as under: "276DD. Failure to comply with the provisions of section 269SS.--If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ducing section 269SS is to ensure that a taxpayer is not allowed to give false explanation for his unaccounted money, or if he has given some false entries in his accounts, he shall not escape by giving false explanation for the same. During search and seizures, unaccounted money is unearthed and the tax payer would usually give the explanation that he had borrowed or received deposits from his relatives or friends and it is easy for the so-called lender also to manipulate his records later to suit the plea of the taxpayer. The main object of section 269SS was to curb this menace. As regards the tax legislations, it is a policy matter, and it is for Parliament to decide in which manner the legislation should be made. Of course, it should stand the test of constitutional validity. A Constitution Bench of this court in S.K. Dutta, ITO v. Lawrence Singh Ingty [1968] 68 ITR 272 held: "It is not in dispute that taxation laws must also pass the test of article 14. That has been laid down by this court in Moopil Nair v. State of Kerala [1961] 3 SCR 77. But as observed by this court in East India Tobacco Co. v. State Of Andhra Pradesh [1963] 1 SCR 404, 409 in deciding whether the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said to be equal integral parts, when we view them from the angle of tax evasion, we find that they cannot be regarded as equals or similarly situated. Compared to the class consisting of lenders, the class consisting of borrowers can be said to be in a position to evade tax by adopting the devices, for curbing which provisions have been made in Chapter XX-B by inserting section 269SS and other sections." In view of the aforesaid circumstances, we do not think that section 269SS is, in any way, violative of article 14 of the Constitution and consequently quashing of the proceedings by the learned single judge of the Madras High Court (see [1992] 197 ITR 330) for this reason is not legally sustainable. Another contention urged by the appellant's counsel in Civil Appeal No. 4478 of 2000 is that Parliament had no legislative competence to enact section 269SS. The source of power for enactment of section 269SS is traceable to entry 82 in List I of the Seventh Schedule and this according to the appellant's counsel can relate only to tax on income other than agricultural income and the expression "income" in that entry has to be interpreted according to its natural and grammatical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faction of the court is that though the Act ostensibly is within the legislative competence of the Legislature in question, in substance and in reality, it covers a field which is outside its legislative competence (see Jaora Sugar Mills (P.) Ltd. v. State of M.P., AIR 1966 SC 416). Applying the above principle, it cannot be said that section 269SS was enacted in respect of a subject which is outside the scope of the Income-tax Act or that this section relates to a topic not within the competence of the Legislature. This court in P.N. Krishna Lal v. Govt. of Kerala [1995] Suppl. 2 SCC 187 held: "An entry in the Seventh Schedule to the Constitution is not a power given to the Legislature but is a field of its legislation. The Legislature derives its power under article 246 and other related articles in the Constitution. The language of an entry should be given the widest meaning fairly capable to meet the need of the Government envisaged by the Constitution. Each general word should extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended within it. When the vires of an enactment is impugned, there is an initial presumption of its constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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